IBM Said to Offer Concessions in Lenovo Deal

IBM is reportedly offering some serious concessions to
convince
U.S. regulators that selling its PC division to the Chinese won't
compromise national security.

According to the terms of the proposed $1.25 billion deal, IBM becomes a reseller for Lenovo's desktop
and
laptop PCs clients. But Lenovo would gain access to IBM's contracts,
including its vendor status with the U.S. General Services
Administration for government computers, according to reports from Bloomberg News and the International Herald Tribune.

The condition has members of the Department of Homeland Security and
the Justice Department concerned that Chinese spies potentially working
undercover at IBM's U.S. manufacturing plants would use their knowledge
for China's military gain, sources talking to Bloomberg said.

Because of that, Lenovo may be barred access to IBM's U.S.
government
contracts and also may have to restrict employee access to some of IBM's sensitive research facilities in
Research Triangle Park, North Carolina, the reports said

The reports also suggested a three-hour meeting on Wednesday with
the
Committee on Foreign Investment in the United States (CFIUS) rendered
no
decision. A spokesman for the U.S Treasury Department-chaired CFIUS
declined to comment to internetnews.com about any investigation
by the 11-member committee. IBM was not immediately available for
comment but has said that it is "following all the normal and routine
procedures in the review."

IBM is taking the review very seriously as is indicated by its
hiring
of Brent Scowcroft, the former national-security adviser to former
Presidents George Bush and Gerald Ford. Scowcroft is one of several
consultants helping IBM gain approval from CFIUS, Bloomberg said in its
report.

CFIUS' review determines whether a particular acquisition by a
foreign country has national security issues. The deadline was extended
45-days after three Republican congressmen sent a letter to Treasury
Secretary John W. Snow questioning a number of aspects of the deal. The
extension deadline expires on March 14, according to reports. If CFIUS
decides against the transaction, President Bush would need to clear the
deal after a formal investigation is launched.

"If the problem is just cutting off physical access, this is the
easiest thing in the world to fix," National Foreign Trade Council
President Bill Reinsch told internetnews.com. "It is a research
park and they have a decent vacancy rate. If the Chinese came in
separately and wanted to open up an office there, I'm pretty sure the
landlord would let them. This is an odd construct."

Reinsch said he expects the deal to clear CFIUS, but added the
review
may be taking longer than normal because it deals not only with
national
security but also proprietary technology.

Lenovo's new PC business includes IBM's "Think" brand notebook
franchise and allows Lenovo to take a majority stake in the PC
manufacturing portion of the International Information Products Company
(IIPC) in Shenzhen, China, which is co-owned by IBM and Lenovo's rival
Great Wall. The deal does not include IIPC's IBM eServer xSeries
manufacturing in China.

The transaction creates the third-largest PC manufacturing company
behind market leaders Dell and HP .
According
to IDC figures for 2003, the combined unit market share of Lenovo and
IBM's PC businesses worldwide is approximately 8 percent.

One clue that things are progressing the way IBM wants it is an
announcement that its partner Tech Data has extended its TechSelect
Reseller program to its members for Lenovo.

"IBM has always been a leading advocate for the channel," Pete
Peterson, Tech Data's vice president of Software and Systems Product
Marketing said in a statement. "By working closely with distributors
and
resellers, Lenovo will help ensure the health and competitiveness of
the
channel, especially in the SMB [small to medium sized business]
market."